The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

What about the downsides of community? Every community generates competition for social prestige. Such competition is not always bad – it can incentivise activities such as neighbourliness that are not rewarded by the market. Nevertheless, it can also incentivise wasteful one-upmanship – a recent study suggests that bankruptcy filings for neighbours go up if a household wins a lottery, presumably as the neighbours try to keep up with the Joneses.1 Also, a community breeds jealousies, and even hatreds. It fosters conservatism. While we cannot presume that the good outweighs the bad in every community, members of a modern community have the option of leaving it if it turns out to be too oppressive. In general, communities will have to offer enough benefits to everyone so that they want to stay. That limits how bad communities can get. In this chapter, we will start by examining why virtual communities, professional associations, religious associations, and other such structures will allow for some of these functions of the physically proximate community but not all. We need vibrant physically proximate communities, and central to their existence is the presence of viable economic activity – nothing erodes a person’s self-worth faster than a sense that they have nothing productive to contribute. Despair, combined with alcohol, drugs, or violence, can erode the social fabric significantly. Even those who continue to hope may leave rather than succumb to the melancholy that sur...

Downsides of neighborliness listed